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cmr090649
Returning Member

How do you enter the information from Form 1099-Q?

I received Form 1099-Q for qualified expenses for my granddaughters. How do I enter the information on TurboTax?

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14 Replies
RayW7
Expert Alumni

How do you enter the information from Form 1099-Q?

Form 1099-Q reports distributions and benefits from Coverdell education savings accounts and 529 plans. It's reported on the tax return of the person whose Social Security number is on the form.

Here's how to enter your 1099-Q in TurboTax:

  1. Open or continue your return.
  2. Select Federal and then Deductions & Credits.
  3. Scroll down to the Education section under All tax breaks.
  4. Select, Show more and select Start or Revisit next to ESA and 529 qualified tuition programs (Form 1099-Q).
  5. Follow the screens to enter your info.

Note:

A 529 plan (aka qualified tuition plan or QTP) is operated by a state or educational institution with tax benefits and other incentives, making it easier to save for college, post-secondary training, and K–12 education expenses.

Formerly limited to higher education, 529 plan distributions can be used towards qualified K–12 expenses – up to $10,000 per student – in tax years 2018 through 2025.

You can set up a 529 plan for yourself or a designated beneficiary such as a child or grandchild. Earnings on 529 plans aren’t taxed by the federal government nor most states, as long as the distributions are used towards qualified education expenses.

Distributions from 529 plans are generally reported on Form 1099-Q.

Hal_Al
Level 15

How do you enter the information from Form 1099-Q?

You don't enter it on tax return or in TurboTax. On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution."

 

So, you can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. You would still have to do the math to see if there were enough expenses left over  to claim the tuition credit. You (and/or the parents or student herself) cannot double dip",  When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records..

 

* I assume the student is not  your dependent, but is the dependent of her parents.  If they plan to claim a tuition credit, they cannot use the same tuition expenses, that you use to claim the earnings exclusion on the 1099-Q.  So, you have to coordinate with them.   See separate reply for details.

 

Hal_Al
Level 15

How do you enter the information from Form 1099-Q?

Qualified Tuition Plans  (QTP 529 Plans)

It’s complicated.

For 529 plans, there is an “owner” (in this case the grandparent), and a “beneficiary” ( the student ). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q. 
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
Even though the 1099-Q is going on the student's return, the 1098-T should go on the parent's return, so you can claim the education credit. You can do this because he is your dependent.

There needs to be some coordination between the parent (assuming the student is your dependent) and the recipient. You can and should claim the tuition credit before the grandparent (or student) claims the 529 plan earnings exclusion. The educational expenses they claim for the 1099-Q should be reduced by the amount of educational expenses you claim for the credit.
Be aware, you can not double dip. You cannot count the same tuition money, for the tuition credit,  that gets him an exclusion from the taxability of the earnings (interest) on the 529 plan. Since the credit is more generous; use as much of the tuition as is needed for the credit and the rest for the interest exclusion. Another special rule allows you to claim the tuition credit even though it was "his" money that paid the tuition.
In addition, there is another rule that says the 10% penalty is waived if he was unable to cover the 529 plan withdrawal with educational expenses either because he got scholarships or the expenses were used (by him or the parents) to claim the credits. He'll have to pay tax on the earnings, at his lower tax rate (subject to the “kiddie tax”), but not the penalty.

 

Total qualified expenses (including room & board) less amounts paid by scholarship less amounts used to claim the Tuition credit equals the amount you can use to claim the earnings exclusion on the 1099-Q. 
Example:
  $10,000 in educational expenses(including room & board)

   -$3000 paid by tax free scholarship***

   -$4000 used to claim the American Opportunity credit (on the parent's return)

 =$3000 Can be used against the 1099-Q (on the grandparent's  return)

 

Box 1 of the 1099-Q is $5000

Box 2 is $600

3000/5000=60% of the earnings are tax free

60%x600= $360

The recipient has $240 of taxable income (600-360)

 

**Alternatively; you can just not report the 1099-Q, at all, if the student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution. You would still have to do the math to see if there were enough expenses left over for you to claim the tuition credit. Again, you cannot double dip!  When the box 1 amount on form 1099-Q is fully covered by expenses, TurboTax will enter nothing about the 1099-Q on the actual tax forms. But, it will prepare a 1099-Q worksheet for your records, in case of an IRS inquiry.

 ***Another alternative is have the student report some of his scholarship as taxable income, to free up some expenses for the 1099-Q and/or tuition credit.

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution.

cmr090649
Returning Member

How do you enter the information from Form 1099-Q?

After entering the information from Form 1099-Q why is there federal tax owing? It is a qualified education expense. The tax is for the earnings portion of the distribution.

Hal_Al
Level 15

How do you enter the information from Form 1099-Q?

 "The tax is for the earnings portion of the distribution."

You mean the taxable income amount is the same as the earnings portion? That usually indicates you haven't entered the educational expenses.

 

The interview is complicated.  You have to carefully enter the expenses and answer the qualifying questions.   That why I recommended that you not enter the 1099-Q at all, if you already know it's a qualified distribution. 

 

If the student is  not your dependent, the interview is usually a little easier.  After entering the 1099-Q, several screens later, you will get a screen titled "Non-dependent student expenses".  All expenses can be entered on this single screen. There are boxes for tuition, books, room & board, computers.

How do you enter the information from Form 1099-Q?

@Hal_Al @RayW7 If an early distribution for minors ages less than 10 was taken and the gross distribution in box one is $1200 to $1600.   Does one need to file a full return for each minor?   Also, they are below the basis of the contributions.  Thank you. 

Hal_Al
Level 15

How do you enter the information from Form 1099-Q?

@casberg88 

Simple answer: Yes.

The potentially taxable portion of a 1099-Q is the amount in box 2 (the earnings).  The taxable portion is unearned income and the filing threshold for a minor, with unearned income, is $1100. 

 

Your box 2 amount is probably less than that, so it would appear the child doesn't need to file.  But, even though no tax is due, there is a 10% non qualified distribution penalty on the taxable portion (10% of box 2). So, they each need to file. 

How do you enter the information from Form 1099-Q?

@Hal_Al @RayW7 

My Box 2 is empty.  Also my basis is empty in box 3.  The basis is above the Gross distribution, i.e. contributed $4,000.00 and gross distribution is $1500. 

 

Regarding the early withdrawal penalty would you have to file if the Gross distribution is less than $1100 too?

Hal_Al
Level 15

How do you enter the information from Form 1099-Q?

Box 2 and 3 being empty means the plan administrator didn't calculate the earnings portion of the distribution. Somewhere on the 1099-Q is the fair market value of the account. Using that and your total basis (($4000), you have to calculate the earnings portion of the distribution. TT will do that for you, with the proper entries.

 

The fact that your total basis is more than the distribution does not mean the distribution is not taxable.  You don't get to remove your contributions (basis) first. Every distribution is part basis and part earnings (unless the account lost money).

 

Q. Regarding the early withdrawal penalty would you have to file if the Gross distribution is less than $1100 too?

A. Yes.  The penalty is due regardless of how small the taxable amount is.  So, you have to file.

How do you enter the information from Form 1099-Q?

Thank you, very helpful.

 

Yes,  have 3 accounts all lost money do I still have to file it?

Hal_Al
Level 15

How do you enter the information from Form 1099-Q?

Q.  3 accounts all lost money do I still have to file it?

A. No.  The taxable amount is zero. The non qualified distribution is 10% of the taxable amount, so the penalty is also zero. 

How do you enter the information from Form 1099-Q?

Thank you! How does the IRS know that for each minor that the accounts lost money if one doesn't file anything?  Is there a form the broker reports yearly?

Hal_Al
Level 15

How do you enter the information from Form 1099-Q?

They don't know.  But they do get a copy of the 1099-Q.  You may or may not get an IRS inquiry.  Keep good records in case you have to explain.  This is nothing you can do to head off an inquiry.

 

When  box 2 is non taxable,  TurboTax will enter nothing about the 1099-Q on the actual tax forms. 

On form 1099-Q, instructions to the recipient reads: "Nontaxable distributions from CESAs and QTPs are not required to be reported on your income tax return. You must determine the taxability of any distribution." 

How do you enter the information from Form 1099-Q?

Thank you! Very helpful.

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